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There is still a lot of uncertainty following Alberto Fernández’s widely-expected victory in Argentina’s presidential election, but one point we would stress is that a large debt write-down will ultimately be required during Mr. Fernández’s presidency. …
28th October 2019
Brazil: Pension law unlikely to launch reform wave President Jair Bolsonaro won a major victory this week when the senate gave final assent to his pension reform bill. The new law, which imposes a higher retirement age and increases workers’ …
25th October 2019
Inflation remains soft, rate cuts ahead Mexican inflation remained at 3.0% y/y October, which supports our view that policymakers will cut their key rate from 7.75% to 7.25% by the end of this year. Figures released today showed that Mexican inflation …
24th October 2019
Chilean policymakers’ decision to cut their key interest rate by 25bp yesterday and the dovish tone of the accompanying statement supports our view that the easing cycle has further to run. We continue to expect 25bp of cuts by year-end, and a further …
Left-wing Peronist Alberto Fernández is widely expected to win Sunday’s presidential election, and we think that his tenure would be marked by more accommodative policy, persistently high inflation, further large currency falls and a large debt …
23rd October 2019
Brazil’s pension reform bill should help to stabilise the public finances and lift a dark cloud over the outlook. The government has a long to-do list of further fiscal reforms, although the political situation suggests that some of these will be delayed, …
22nd October 2019
50bp cut almost certain now The fall in Brazilian inflation to 2.7% y/y in the middle of October, one of its lowest rates on record, means policymakers will (barring any hiccups in the final vote on pension reform later today) almost certainly cut the …
As things stand, there are reasons to think that the protests that erupted in Chile in recent days will have a relatively small impact on the economy and financial markets. The central bank is likely to look through the political turmoil and cut the …
21st October 2019
Mexico: Counting the cost of the GM strike The knock-on effects of the strike by GM auto workers in the US mean the Mexican manufacturing figures due in the coming months will make for grim reading. But if GM’s deal with striking workers is approved, the …
18th October 2019
The shift in market expectations in Brazil towards much larger interest rate cuts by early 2020 now looks overdone. However, expectations for the Selic rate over a longer time horizon (2-5 years) look too high . There is a growing debate about how far …
17th October 2019
Overview – After a weak 2019, we expect that growth across most of Latin America will improve next year. That said, our forecasts for the regions two biggest economies – Brazil and Mexico – are below consensus. And Colombia and Argentina will miss out on …
16th October 2019
Crisis in Ecuador rages on Intensifying anti-austerity protests in Ecuador caused bond spreads to widen this week and threaten to dilute the government’s agenda. For now, though, we think that the government will be able to navigate this turmoil with …
11th October 2019
Manufacturing weakness is here to stay Mexican industrial production rose by a surprisingly brisk 0.8% m/m in August, but with the key manufacturing sector facing a slowdown, we expect that conditions for industry as a whole will remain weak later this …
The monetary transmission mechanism in Brazil seems to have weakened recently, which is likely to prevent the sharp fall in market interest rates seen since 2017 from feeding through to a significant pick-up in credit growth. The recovery in bank lending …
10th October 2019
Inflation surprise puts another 50bp cut on the table The fall in Brazilian inflation to a weaker-than-expected 2.9% y/y last month opens the door to another 50bp cut in the Selic rate when Copom meets at the end of this month. The outturn for September …
9th October 2019
Weak inflation adds to case for November rate cut Mexican inflation eased to a three-year low of 3.0% y/y in September, which strengthens our view that policymakers will cut their key rate from 7.75% to 7.25% by the end of the year. Full-month figures …
Peru’s constitutional crisis easing, for now The political turmoil that erupted in Peru earlier this week now seems to be fizzling out. President Martín Vizcarra swore in a new cabinet on Thursday and the electoral authority has announced the date of new …
4th October 2019
Worsening relations between the Brazilian presidency and legislature threaten to delay the much-vaunted pension bill and will keep markets on tenterhooks in the coming weeks. It still looks like the reform will be approved, but the latest events suggest …
3rd October 2019
Chile’s economic slowdown this year was mostly due to weaker private consumption, caused by a fall in consumer confidence. But with the labour market strengthening and copper prices likely to rise next year, we expect that consumer spending growth will …
The dissolution of congress by President Martín Vizcarra and his heated stand-off with the opposition will likely cause a sell-off in markets and further political gridlock. But as things stand, we doubt that this will prevent Peruvian GDP growth from …
1st October 2019
Further signs of recovery The better-than-expected 0.8% m/m rise in Brazilian industrial production was driven by rapid growth in the mining sector, which won’t be sustained. Even so, the figures add to the evidence that the economic recovery gathered …
The central banks of Brazil and Mexico loosened policy this month, and we expect that they will continue to cut rates in Q4. Inflation in both countries is below target, and both economies are struggling and in need of policy support. In Mexico, dovish …
30th September 2019
Brazilian households on the rise… Figures published this week support our view that Brazilian households should help to drive a modest economic recovery over the coming quarters. The first positive surprise in the incoming data came from the payrolls …
27th September 2019
Mexican policymakers cut their policy rate from 8.00% to 7.75% yesterday, and we think that they will continue to loosen policy over the coming quarters. We now expect a 25bp cut in both of the remaining meetings this year, taking the rate to 7.25% rather …
Inflation below target, and set to remain low The Brazilian mid-month inflation figure of 3.2% y/y in September leaves the door open to further monetary easing over the coming months. Beyond that, the large output is likely to keep inflation below target …
24th September 2019
Softer inflation adds to argument for another cut Mexican inflation eased very slightly over the first half of September, supporting our view that policymakers at the central bank will cut their key rate from 8.00% to 7.75% on Thursday. Figures released …
President Nicolas Maduro’s attempts to control inflation have had some effect, but without more severe measures we think that price pressures will probably remain extremely high over the coming months. After peaking at 350,000% y/y in January, Venezuelan …
23rd September 2019
Argentina’s Q2 GDP figures largely moot Data released this week showed that Argentina’s recession eased in Q2, but more timely figures point to a sharp downturn in Q3 and Q4. The headline from Thursday’s Q2 GDP release – that the pace of contraction eased …
20th September 2019
The Brazilian central bank’s decision to cut the Selic rate by 50bp last night was accompanied by a statement clearly signalling that policymakers intend to ease monetary policy further. As a result, we now expect another 25bp cut in October. The 50bp cut …
19th September 2019
The Brazilian government’s tax and budget reform plans would, if implemented, significantly improve the country’s longer-term fiscal health and productivity growth. But the proposals will face more opposition than the government’s recent efforts to …
18th September 2019
Mexico waking up to Pemex’s problems The $5bn cash injection for Pemex announced by Mexico this week adds to signs that policymakers may finally be starting to acknowledge the gravity of the problems at the state energy company. (For more on these issues, …
13th September 2019
Latin American currencies are likely to weaken further in the coming months alongside most EM currencies. But while we expect the Chilean peso and Peruvian sol to end next year stronger than their current level, the Brazilian real and Colombian peso will …
11th September 2019
Industry remains in the doldrums The 0.4% m/m fall in Mexican industrial production in July adds to our view that economic activity remains subdued and Banxico will cut interest rates later this month. The decline in industrial production in July was …
The 2020 budget presented by Mexico’s finance ministry at the weekend suggests that there will be a tilt towards providing modest stimulus to the struggling economy. But the big picture is that the government is continuing to pursue fiscal discipline, …
9th September 2019
Falling inflation seals the deal for September rate cut The sharp drop in Mexican inflation from 3.8% y/y in July to 3.2% y/y in August is likely to be followed by further falls over the rest of the year. That should pave the way for more monetary easing …
Argentina: Capital controls raise painful memories The introduction of capital controls last weekend seems to have stabilised Argentina’s official exchange market. After losing 24% of its value against the US dollar over the preceding three weeks, the …
6th September 2019
Low inflation opens door for further rate cuts The small rise in Brazilian inflation (to 3.4%y/y in August) is unlikely to trouble policymakers at the central bank. With the headline rate below target and the economy struggling, we expect a 50bp cut in …
Yesterday’s MPC statement suggested that Chilean policymakers will follow yesterday’s 50bp cut with more easing. The latest growth and inflation data have been weak, and there is a window for further rate reductions. We have now pencilled in an additional …
4th September 2019
We think that low oil prices and a continued slump in the property sector will cause investment growth in Colombia to slow in the coming quarters. This is one reason why our growth forecasts sit at the bottom of the consensus range for this year and next …
3rd September 2019
A bad start to Q3 The surprising 0.3% m/m drop in Brazilian industrial production in July probably seals the deal on a 50bp interest rate cut at the next central bank meeting on 18 th September. July’s outturn was not as bad as the 0.7% m/m contraction …
The capital controls introduced by Argentine President Mauricio Macri over the weekend may, in the short term, help to stem capital flight and slow the pace of FX reserve depletion. But their imposition might make it easier for a future left-wing …
2nd September 2019
The collapse in Argentine assets this month and the subsequent news that the government will seek to reprofile its debts puts the country on the brink of its fifth default in thirty years. The economy is likely to fall back into recession, although the …
30th August 2019
No joined-up thinking raises risk of more surprises The Argentine government’s debt reprofiling plan has been greeted with some scepticism, and we think markets will remain under pressure unless investors see evidence of joined-up thinking between Alberto …
Investment supported Q2 recovery The surprisingly strong 0.4% q/q rise in Brazilian GDP in Q2 confirms that the extremely weak activity recorded earlier this year was a blip rather than the start of a renewed downturn. But the economy is still soft and …
29th August 2019
The Argentine finance ministry’s decision to extend the maturities of some of its short-term local-law debt, and enter talks with external bondholders, is tantamount to default. The government and bondholders stand a good chance of agreeing to some …
The Argentine central bank’s large intervention in the FX market in recent days hasn’t been enough to stop the peso from weakening further against the dollar, and we think that the gross FX reserve figure overstates the BCRA’s ability to prop up the peso. …
28th August 2019
Brazil’s sluggish recovery Data due next week are likely to show that Brazil’s economy stagnated in the second quarter and, while there are signs that activity strengthened at the start of Q3, the economy remained extremely weak. The Q2 GDP figure (due on …
23rd August 2019
Investors appear to be coming round to our view that an Argentine sovereign debt default is now more likely than not. This Update provides clients with a primer on the composition of federal government debt, and explains what this might mean for any debt …
Soft inflation increases likelihood of 50bp cut The weaker-than-expected Brazilian inflation figure, of 3.2% y/y, raises the likelihood that Copom will cut the Selic rate by 50bp (rather than 25bp) when it next meets on 18 th September. The mid-month …
22nd August 2019
Chunky fall in inflation to give Banxico room for another rate cut The larger-than-expected fall in Mexican inflation in the first half of this month, to 3.3% y/y, strengthens the case for Banxico to follow up this month’s 25bp interest rate cut with …
